A Stadium's Costly Legacy Throws Taxpayers for a Loss

CINCINNATI—Here in Hamilton County, where one in seven people lives beneath the poverty line and budget cuts have left gaps in the schools and sheriffs department, residents are bracing for more belt-tightening: rollback of a property-tax break promised as part of a 1996 plan to entice voters to pay for two new stadiums.

The tax hit is just the latest in a string of unforeseen consequences from what has turned into one of the worst professional sports deals ever struck by a local government—soaking up unprecedented tax dollars and county resources while returning little economic benefit.

With a combined estimated cost of $540 million, the stadiums—one for football's Bengals, the other for baseball's Reds—were touted by the teams and county officials as a way to generate cash and jobs. The Bengals, who had threatened to relocate if they didn't secure a new home, drove negotiations. And it is that deal—the more lucrative arrangement struck with the teams—that has fanned the county's current struggles.

ENLARGE

Hamilton County has cut funding for social programs and other budget items. One enduring obligation: its huge debt payments for Paul Brown Stadium.
Reed Albergotti/The Wall Street Journal

Journal Community

An analysis by The Wall Street Journal shows that of the 23 National Football League stadiums built or renovated between 1992 and 2010, only two involved a single county government willing to shoulder the debt burden necessary to build costly new facilities. Of those 23 deals, the Bengals pact was unusually lopsided in favor of the team and risky for taxpayers—the result of strained negotiations between a local government and the professional sports team it was anxious to keep.

At its completion in 2000, Paul Brown Stadium had soared over its $280 million budget—and the fiscal finger-pointing had already begun.

The county says the final cost was $454 million. The team's estimate, which doesn't include infrastructure work around the stadium, puts the tab at $350 million.

But according to research by Judith Grant Long, a Harvard University professor who studies stadium finance, the cost to the public was closer to $555 million once other expenditures, such as special elevated parking structures, are factored in. No other NFL stadium had ever received that much public financing.

A spokesman for the Bengals, vice president Troy Blackburn, says the deal was fairly negotiated and similar to other arrangements made by NFL teams at the time.

He attributes the cost overruns to the county's decision to move the stadium location to a site where it was more expensive to build.

Hamilton County commissioners say the location change accounted for only $70 million of the extra costs.

ENLARGE

A preliminary PricewaterhouseCoopers audit of construction costs, reviewed by the Journal, found that there were insufficient financial controls on the part of various project managers and contractors hired by the county. It notes that at least $35 million of the cost overruns were unrelated to the site change, of which the Bengals were responsible for roughly $4 million.

The auditors, citing "blurred accountability," said they hadn't been given enough information for a full accounting. "Each party suggested that we speak to other parties about specific details of the changes," they said in the report.

On top of paying for the stadium, Hamilton County granted the Bengals generous lease terms. It agreed to pick up nearly all operating and capital improvement costs—and to foot the bill for high-tech bells and whistles that have yet to be invented, like a "holographic replay machine." No team had snared such concessions in addition to huge sums of public money, Journal research shows.

To help finance its stadiums, Hamilton County assumed more than $1 billion in debt by issuing its own bonds without any help from the surrounding counties or the state. As debt service ratchets up, officials expect debt payments to create a $30 million budget deficit by 2012.

"The Cincinnati deal combined taking on a gargantuan responsibility with setting new records for optimistic forecasting," says Roger Noll, a professor of economics at Stanford University who has written about the deal. "It takes both to put you in a deep hole, and that's a pretty deep hole."

The stadium's annual tab continues to escalate, according to the county's website. In 2008, the Bengals' stadium cost to taxpayers was $29.9 million, an amount equivalent to 11% of the county's general fund.

Last year, it rose to $34.6 million—a sum equal to 16.4% of the county budget. That's a huge multiple compared to other football stadiums of the era that similarly relied on county bonds for financing. Those facilities have cost-to-budget ratios of less than 2%.

Robert Boland, sports business professor at New York University's Tisch Center says that while the Cincinnati deal was skewed, it's important to remember there were two sides at the table. "You can't blame the Bengals at all for negotiating the most favorable deal they can," he says. Hamilton County was a "willing participant."

Given the national economic slump, the county budget would have run into trouble with or without the Bengals deal. But county officials say the cuts are deeper and longer lasting because of it. Unlike most areas of the budget, the stadium can't be pared.

Like many other items in the budget, the juvenile court has seen its funding slashed—by $13.4 million from 2008 to 2010. It was forced to nix funding for programs like Youth, Inc., which worked with troubled adolescents.

County Auditor Dusty Rhodes initially supported the stadium deal—partly as a matter of civic pride. But now he feels differently about the costly legacy that has grown in the arenas' shadow—and believes there's plenty of blame to go around.

The county, he underscores, has used some of the tax dollars earmarked for the stadium on things like a road project and a new waterfront development. "They just went nuts spending this money for stuff that was not envisioned," he says.

The Bengals maintain that the county has made a series of financial moves that left it vulnerable to a downturn. "If you make a decision to fund something, you can't try to hold somebody else responsible for that decision," says Mr. Blackburn.

The Reds, through a spokesman, said the team is under new ownership and can't speak to any local financial problems. The Reds' Great American Ballpark, completed in 2003, didn't go over budget and today is largely self-supporting.

Cincinnati's deal, like many of similar vintage, was crafted as a way to keep sports franchises in place. In the 1990s, many pro teams threatened to relocate unless their local governments could offer subsidies.

Teams were given public land and rent abatements. Some received new stadiums worth upwards of half a billion dollars, paid for in large part with government bonds.

But unlike in Cincinnati, where a single county shoulders most of the risk, the exposure for most NFL stadium deals has typically been spread over a large area. When the Philadelphia Eagles got a new stadium in 2003, the state of Pennsylvania picked up roughly half of the projected public cost. When the Denver Broncos landed a new stadium in 2001, six counties carried the burden. The Ohio Cultural Facilities Commission pitched in $73.35 million toward the cost of Cincinnati's two sports stadiums, or less than 15% of what the facilities were originally expected to cost.

Hillsborough County, home of the Tampa Bay Buccaneers, was another exception, shouldering most of its stadium costs.

The Bengals and the Reds had shared a facility called Riverfront Stadium since 1970. The push for separate homes was led by the Bengals, who had said as early as 1995 that without a new stadium they might be forced to relocate.

Some local officials had cautioned that the stadium expense was too great. They warned that the projected $300 million in economic benefits, outlined in a report commissioned by the county, were exaggerated.

Tom Luken, a former Cincinnati mayor and councilman, actively campaigned against the deal. "Anybody with half a brain can figure that this is a bad deal," he says. "As it turned out, it was even worse than they painted it."

The Bengals' Mr. Blackburn says that residents were "an informed and engaged electorate."

Negotiations between the Bengals and the county were ultimately handled by a three-person county board of commissioners. One of those commissioners, Bob Bedinghaus, joined the Bengals in 2001 and is now the team's director of business development.

Hamilton County voters overwhelmingly approved a half-percent sales tax increase in March 1996, paving the way for the pair of stadiums. In exchange, residents were promised a property-tax rollback and more funding for public schools.

After the vote, the Bengals haggled for roughly a year with the county over the construction and lease terms under a deadline imposed by the team, which refused to share its financial records, according to a county official present at the meetings.

Among the sticking points: who would pocket the millions in annual parking revenue (the Bengals now collect those funds) and who would pay for security costs (the county picks up the bills).

The Bengals say that the county had expert consultants during the negotiations and that NFL teams don't make financial information publicly available.

All along, the Bengals had used as leverage offers from other cities, including Baltimore—saying the city had floated a better deal.

A letter dated June 1, 1995, which was reviewed by the Journal, suggests the team had exaggerated one of its prospects. Sent by an attorney for The Maryland Stadium Authority, it stated that any Baltimore deal would be capped at $200 million, or 16% less than what Hamilton County officials had been dangling. Maryland also refused to cover operational costs.

It said that neither the governor nor the stadium authority would support "any proposal which contemplates seeking legislative approval for additional government funding."

Stuart Dornette, the Bengals attorney, maintains that the Baltimore deal was better, in part because the home team would get to keep revenue from other events held in the stadium. He says the team also believed the $200 million cost limit was flexible.

John Moag, head of the Baltimore stadium authority at the time, disputes that notion, and reiterates that there was no additional government funding available. The more favorable terms the team secured from Cincinnati, he says, "may be the best deal in the NFL."

Hamilton County ultimately agreed to cover all stadium cost overruns as well as most operating and upkeep expenses—a tab of roughly $8 million per year.

As soon as the Bengals stadium went up, sales tax revenue began to slow from the record growth the county had seen in the mid-1990s. The county has had to restructure the debt on the stadium a number of times to keep up with payments. Late last year, officials announced they would have to break their promise about reducing property taxes for 2011.

In the fall of last year, the Bengals offered to make larger lease payments to help the county pay debt service on the stadium. In exchange, the team asked for $43 million in capital improvements, among other concessions. One item on the wish list: a high-definition video scoreboard. The talks, however, fell apart, and a new lease was never negotiated.

Recently, as local officials mulled new ways to stretch the budget, one commissioner suggested making up for the tax hike by cutting another property-tax levy: one that funds health services for the poor. A decision on the budget is still pending.

The Bengals had said that with a new stadium, the team's revenue would increase, allowing it to sign better players, win more games and attract more fans to the area. In 2000, the new stadium's first year, the Bengals had the same record they'd had the previous year, 4-12. Since then, the team has managed just two winning seasons in the new facility. Its attendance levels have actually dropped.

Mr. Dornette, the Bengals' attorney, says the team is spending roughly what other teams spend on player salaries.

Harold Flaherty, a former schoolteacher, says he is livid about the sports pact. "It staggers my imagination that we should pay for this," he says. "I think it's the dumbest thing we ever did." Mr. Flaherty, 77, will pay about $240 more in property taxes this year due to the rollback.

Mr. Flaherty, a sports fan who voted against the stadium deal, says he doesn't go to Bengals games. "I already give them money," he says.

Corrections & Amplifications The Ohio Cultural Facilities Commission has given Hamilton County $73.35 million toward the cost of building Cincinnati's two sports stadiums, less than 15% of what the stadiums were originally expected to cost. The Ohio Legislature has capped the state's funding of the stadium at $81 million, according to the commission. An earlier version of this article incorrectly implied that there had been no state support.

This weird attachment to pro sports teams is pathological. who cares if they stay or go? let them walk. no one needs to actually go to a game to enjoy them. if the cincinnati teams move so what? watch it on tv like most people do anyway. these franchises are leeches. the revenue they bring in pales in comparison to the amount they suck out. restaurants and clubs are service related businesses. guess what? people ALWAYS need services. quit choking the life out of your own city. let them eat cake.

Along with the red ink, aesthetic crimes were committed in building these monstrosities in Cincinnati.No one mentions what might have been a beautiful riverfront in downtown Cincinnati along the majestic Ohio River. The area is a no-man's land -- destroyed by two looming stadiums, their adjacent cavernous parking structures and sweeping freeway overpasses and underpasses.

Any one looking to criticize the Cincinnati Bengals should think twice. The Bengals are a family business and as a family business, it has been a success. The deal the team struck with the county is evidence of that. The fundamental conundrum is that everyone who rightly criticizes the team over their win-loss record would most assuredly praise Mike Brown & family based on the bottom line. The Bengals are the unquestioned laughing stock of the NFL. This fact is not in dispute. But that fact is not reflected in the boardroom. During the championship run of the Chicago Bulls, the Bengals were more profitable. After the vote on the stadiums, Jerry Carroll, builder of the Kentucky Speedway, said the voters just gave the Bengals a stadium before they knew what it looked like, where it was to be built and how much it was going to cost. The real question is why didn't local government figure that one out BEFORE THE VOTE!?!? Paul Brown was a founding father of the NFL. Football was in that man's DNA. His son, Mike Brown doesn't know the difference between an end zone and a book end. But show Mike Brown a bottom line and he'll score every time.

WSJ shows the numbers side, here is the moral and social sode: Mike Brown the owner is a great businessman who cares not at all about the fans...just their dollars. given the team absolutely sux sux sux sux sux, the Fans could simply not show up. Because when theydo, they are worse than enablers and should bring with them a 55 gallon drum of vaseline and a mop for an applicator....bend over bengals fans. You deserve better. Walk away from the Bengals...its only 8 games a year .... stop bending over.

Hamilton county commissioners and the public who voted for this should be ashamed....Cincin is laying off cops, teachers, etc....Mike Brown ... please take your stained underwear of a team and get out.

Nah, raising taxes on anyone is wrong- unless they're undertaxed (like Corporate America, who pay no taxes). Instead, the teams who play at this stadium should give DEEP DISCOUNTS on tickets to the taxpayers who attend the games. The easiest answer to this whole scam cooked up by owners and local corrupt governments across the US- stop going to the games. Go to a play/movie/festival/musical/anything else.

Troy A. Blackburn, Bengals' VP and Mike Brown son-in-law, rebuts this article primary argument being his family's stadium was voted on, the other expenditures or in Blackburn's words, "mission creep"(emphasis Blackburn's), were not voted on. This mission creep included a new highway project, an urban redevelopment project, and enhanced funding for public schools. In other words, what they should have been paying for rather than a stadium that sits empty for most of the year. Because, Blackburn asserts, the list aforementioned was not voted on as his families stadium was they are both less worthy and the reason for Hamilton Counties financial difficulty.

I lived in Cincinnati during this fiasco, and the treachery of Bob Bedinghaus in this matter is simply disgusting. Here is a guy from a well known local family, the product of a large Catholic school who simply sold out hisconstituents for a job. A person who really took his public reponsibilities seriously and who really cared about his hometown would never have agreed to this. You will never convince me the two weren't related becauseonce the details of the deal came out he was thrown out of office, as I suspect Mike Brown knew he would be.

The Bengals organization consists of Mike Brown who is a living demonstration that football genes don't passon, and members of his family who are nice people but who have proven, through their incompetence that they couldn't manage a candy bar out of a vending machine let alone a profesional sports franchise. They have and continue to rape the community, with this deal, with the subsequent renegotiations and maybe most of all, with the dismal performance of the team on the field. If they were a regular business, and not an NFL Team with guaranteed television revenue, they would be bankrupt long ago.

Some paint all this as good negotiation by Mike Brown. Not me. This is a man who doesn't care about anything but the money. When he dies, outside of his immediate family there won't be anyone at his funeral.

The stadium deal is sad indication that voters across this country care more about funding billionaire owners of professional sports team and their millionaire players and can't find the money to fund scholarships for urban and underserved youth with scholarships to higher education. It shows the updside down priorities in our society. Cincinnati is a great town to live. We were promosed that both stadiiums and scholarships would be funded. Sadly we would rather party with a NFL Team with a consistent losing record than invest in our future- our kids.

The folly of public funding of sports stadiums has a 30 year legacy. If the electorate hasn't caught on yet, then shame on them. Although the article mentioned the stadiums in Baltimore, it didn't mention the outcome. $1 billion to build 2 stadiums and the schools haven't seen new books in a decade. It's a travesty. How do NFL and MLB owners and players not understand that they are destroying the future of many of the cities in which they "play"?

On a similar note, Nassau County on Long Island is about to vote on a referendum (August 1) to redevelop the area around Nassau Coliseum for a new arena (long overdue) for the NY Islanders, and a new minor league baseball park. The bond amount is expected to be $400 million, with the debt to be serviced from event revenues, etc. over the next 30 years. This situation is eerily similar to the one in Hamilton County/Cincinnati (the Islanders have explored moving in the past). Although well established businessmen like Charles Wang and Frank Boulton are behind these sports teams, who knows if that will be the final cost figure, and 30 year projections can blow up as well.

I'd love to see states enact laws banning the use of public funds for professional sports infrastructure.

Study after study after study has shown that public financing of stadiums always runs over budget, brings in less revenue than promised, and provides less jobs (both in construction and once the stadiums are finished) than advertised.

Ironically, Southern California (LA) will probably never get an NFL team (albeit we have the San Diego Chargers), because the citizens in Southern California will not go for funding a new Stadium. There are two perfectly good venues (The Coliseum or The Rose Bowl). The problem is the NFL has such champagne tastes with the private boxes and over the top extras. The numbers really don’t work for this type of expense. It is a sucker bet for other parts of the country that feel that the need and NFL franchise to be on the map. In Southern California they have to compete with a lot of other entertainment options. They don’t really need a local NFL team to get fill their leisure time. The other problem in Southern California is the local fans are “fair weather fans”. If the team doesn’t win, then the fans will stay away.

One thing worth noting is that one of Mike Brown's kids is married to a Blackburn, and there's a Blackburn quoted in this article. The Bengals' front office is loaded with Brown family members. That's one of the problems with this team. It's run like a family hardware store, or some other business where any warm body can fill certain positions, so you might as well hire a relative. There's nothing wrong with a little nepotism. After all, the Steinbrenner sons were running the Yankees while George was still around. But the Bengals are absolutely packed with relatives.

The Browns drove a hard bargain, but I hardly blame them for the whole mess. There was a bubble in this type of deal similar to the later dotcom bubble, and the Bengals happened to negotiate at the peak. Also, it wasn't the Bengals' idea to not seek help from other counties. With our setup, there are bars across the river where the stadium taxes aren't collected that are actually within sight of the stadium. Northern Kentucky has constructed an entertainment district over there that takes advantage of this epic freeloading opportunity.

It wasn't their fault that the county had a relentless economic decline and is being hollowed out. (Even the housing boom missed the county.) There are a lot more powerful reasons behind the decline than a half cent of sales tax.

But it is their fault that they run the team like it's the 1950's, without any regard to PR. There's no Ring of Honor, no retired jerseys, and the video that plays when the players come out is the same one as when the stadium opened in 2000. Besides providing comments for stories like this, they are silent on everything. Rumor has it that Mike Brown gives a considerable sum to charity, but no one really knows the specifics of it all. It's not the Brown way to make a peep about it. That's what's so frustrating, that the team doesn't communicate and comes off as having no self-awareness. It isn't really that they stink. They've played more home playoff games than the Reds in the past decade, after all.

Hamilton County can survive. The stadium deal is about half over. There's a light at the end of the tunnel. The deal was financed conservatively. We didn't try to get a free lunch with derivatives like they did in Jefferson County, Alabama. Our obligations are what we say they are. The county runs a pretty tight ship in terms of most functions. We don't have a pension monster eating our future. My take on this is live by the terms of the deal and don't try to negotiate any givebacks. The team always wants something of more value than the givebacks, so the best course of action is to just keep the deal and make the Bengals stay for the length of the lease. Right now, cities aren't fighting each other for teams. In fact, there are probably a couple teams too many. By the end of the lease, if this is still true, the Bengals might have to stay put beyond the lease duration.

I thought an interesting comment in the article was that the teams, which were supposed to be better and attract more crowds, IF they just had a nicer stadium, is about a misguided as hoping we'll get smarter students and better teachers by putting them in a new expensive building. In district after district in Ohio, test scores continue to go down, even though we teach the tests - the new buildings just break the taxpayers and we get nothing in return with improved student performance. In sports, our reward for the new stadiums are having professional teams whose members are more likely to be on the police blotters than the All Star rosters.

You could see this trainwreck coming from the first days of the proposals by the teams for new stadiums and they essentially blackmailed the county officials. This result should be no surprise to the taxpayers, any more than hoping for better teams. The Bengals continue near the bottom of the NFL and the Reds are a 500 team at best and full houses at either venue are rather rare these days. The Ohio economy is in a deep tank and no rebound is in sight. Every level of government is broke and services are being slashed. In the meantime, the owners continue to prosper on the backs of gullible taxapayers and their elected representatives. In the meantime the streets around the stadium are full of panhandlers and thugs, even before dark. Even so, the extent of the damage to Hamilton County's finances is staggering when compared to other major league cities. I just toured the new Cowboys stadium, a 1.2 boondoggle in Arlington, TX. There, the city of Arlington, a much smaller city than Cincinnati, is on the hook for over $325 M in costs and they'll never turn a profit, ever, on it. Is it any wonder folks have lost faith in their elected officials and in politicians in general at any level??

Once again proves that Government and politicians incapable of making good decisions. The city has squandered millions of $'s. Recent attempts to iinitiate a trolley system, high speed rail system, launch an incline transportation system, etc which cannot be funded and is not needed suggest we are following the same path of poor decisions!

I am laughing, giving in to "sports-mail" boomerangs back. I remember this one, oh no, the Bengals are going to leave unless they get their own stadium. And everyone, so loyal to the team that was telling the fans adios.

I said, adios and hope the grass in the new field is greener. However, voters said otherwise. Now they are having to put their money where their vote was.

Thank God the residents of Los Angeles refuse to subsidize the NFL and other professional sports teams. Whenever talk comes up about taxpayer funded stadiums and such, I make sure to vote against it. The only ones that get rich in that scheme are the NFL and professional sports team owners while the taxpayers are stuck footing the bill.

You ain't seen nothing yet. Wait till the new baseball stadium opens next year in America's poorest city. Yes that's right, the Florida (soon to be Miami) Marlins, who cannot draw flies, convinced the local politicians that people will flock to their new ballpark in the inner city. The new stadium is mainly paid for by the city and county. The existing stadium, shared with the football Dolphins, is much more convenient to the existing fan base. The reason people don't come see them now, they say, is because it's a football stadium. They expect the current fans to drive to a place no one wants to go (inner city Miami), and deal with traffic problems they do not need to deal with now. Talk about a boondoggle!

I lived in Cincinnati at the time that levy was passed. It was amusing to see so many many rock-ribbed Republicans who were normally so anti-tax (essentially the precursors of the Tea Party) fall over themselves to support this tax.

The owners and players are about satisfying themselves - not the public or their communities.

Does the lockout not demonstrate that they are concerned about the income they get - and the pressure on them is not from the community - but the clock that says they will lose the opportunity to take even more in ticket and TV fees.

Why does it matter if a team wins or loses? The money spent on a publicly funded stadium can be more profitably be spent on schools, roads and bridges. A teams' record has no bearing on my child's' eduction or a pothole free commute to work. I'm also a Steeler fan, but more importantly I'm a tax payer that wants value for his dollar. The psychological value of having a team to divert yourself with is trivial compared to the real issues that families face every day.

Nicely put, Frank. I've never thought that building a stadium was a proper function of government. Governments should stick to governing; setting & enforcing rules so that people can go about their business without hurting each other. Too many elected officials don't understand that simple concept.

Sam...one just opened last year, one's going to open next year. There's not viable reason that San Diego, the Rose Bowl, the LA Coliseum, Stanford Stadium or even AT&T Park couldn't host a Super Bowl other than the NFL dictate that no Super Bowls be held in California until new stadiums are built. Because of severe tax restrictions in California it's very hard to pass stadium ballot measures; so much so the Lakers and Giants built stadiums with their own money. It was 80 degrees all Super Bowl week in California while the tax funded Jerry Jones dome was dealing with heavy snow. A year and a half from now the Super Bowl will be outsides in NYC....ouch! As John Madden said, all the Super Bowls should be in San Diego.

The Reds give back to the community many times over. To mention them in the same breath as the Mike Brown's Bengals is an injustice.

The Reds won their division last year. They have rebuilt their minor league system and will continue to compete for the Central Division title for years to come. They are only 4 games out of first right now.

Your conclusion is absolutely correct. If they can't cover their variable costs with the revenues, then it is better to shut it down and only suffer the fixed costs' loss. We can only hope the season is aborted.

The new Marlins park is being built on the site of the old Miami Orange Bowl.

What is idiotic is that Miami had to run off the one team who WANTED to play there to get the site for the Marlins. The City of Miami all but forced the University of Miami football team out of the OB so they could get the site for the Marlins. Talk about a lose-lose situation.

In my opinion, as an economics professor, the St.Petersburg Rays are attempting a public political extortion of similar proportions to the Marlins in seeking a new stadium. The current deal for Tropicana Field was economically idiotic to begin with when it was contracted; it is undeniably an annual financial net loss to the city. Any future financial expansion of the Rays' public subsidization, in my opinion, would be, well, just plain economically insane.

IIRC, conservative Republicans, including Mayor and Gubernatorial candidate Pat McCrory wanted to build it. Liberal Democrats, noting that the Charlotte Coliseum wasn't even 20 years old, opposed it. The black churches were the ones who defeated the original referendum.

The Hornets stormed out of Charlotte to New Orleans---and are now bankrupt. Charlotte eventually built their arena, and got a new team that is pretty much worthless.

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